Wednesday, July 16, 2014

Nifty chart: a mid-week update (Jul 16 ‘14)

Call it ‘selling on news’ after the budgets failed to announce any big-bang reform measures, or call it routine profit booking after Nifty touched a new high. May be the selling trigger was the negative divergences on the technical indicators that failed to touch new highs with the index.

Whatever the reason(s), the index underwent a 5% correction (less than 400 points) from its peak that lasted all of 5 trading sessions. After turning net sellers for the previous 3 trading sessions, FIIs were net buyers today.

Both WPI and CPI inflation eased, mainly due to lower food prices. That doesn’t mean RBI will reduce interest rates right away. The deficient monsoon is still a concern. So is the increase in the current account deficit.

There are lots of technical supports on the downside for Nifty. Some of them were explained in last week’s update. The index chose the first one, and bounced up. Does that mean the correction is over?

Daily technical indicators are looking mildly bullish. MACD is below its signal line in positive territory, but has stopped falling. ROC is below its 10 day MA in negative territory, but making an effort to turn up. RSI has crossed above its 50% level, after falling below it. Slow stochastic has emerged from its oversold zone.

Volumes are showing that bears haven’t yet given up the fight. Though volumes have started rising with the index during the past 2 trading sessions, they are considerably lower than the down day volumes of last week.

A little more correction or some consolidation is possible before the up move resumes. Valuations are not cheap. Neither are they too expensive. The correction has alleviated overbought conditions. The dip gave an adding opportunity.